May 29 (Bloomberg) -- The World Bank revised down its
projection for the supply of United Nations carbon offsets in
the eight years through 2020 by 30 percent, after a collapse in
prices deterred projects that generate the credits.

Supply of UN Certified Emission Reductions and Emission
Reduction Units will be about 1.9 billion metric tons in the
period, the lender said in a report released today, revising
down an estimate of 2.7 billion made a year earlier. Demand will
be about 1.6 billion tons, creating a surplus of 300 million,
the World Bank said, without providing a comparable figure.

Front-year CER futures plunged 99 percent from their peak
in July 2008 to a record 20 euro cents ($0.26) a ton last month
as regulators in the European Union struggled to tackle a glut
of emissions permits in the bloc’s market. The December contract
rose 2.6 percent to 40 euro cents at 2:32 p.m. on London’s ICE
Futures Europe exchange.

“The price of primary CERs is lower than the cost of
issuance for many projects,” Alex Kossoy, a senior finance
specialist at the World Bank, said today at a press conference
in Barcelona. “Without substantial change it’s doubtful many
projects will continue to pursue issuance of credits.”

Project Slump

Carbon offsets allow buyers to acquire emissions-reduction
credits more cheaply than it would cost to reduce pollution at
home. The EU’s emissions market allowed power stations and
factories to use offsets equivalent to about 14 percent of their
total greenhouse-gas output in the five years through 2012. The
UN credits are created by projects in developing countries, such
as Vietnam, or economies in transition, including Russia.

The number of offset projects seeking approval by the UN’s
regulator, the Clean Development Mechanism Executive Board,
slumped to 17 in February 2013, compared with 256 at the same
time last year, the report showed. In March, the number was 18
compared with 278 in 2012.

“Some analysts forecast an 80 percent year-on-year
reduction in the number of projects submitted for validation in
2013 compared with 2012,” the World Bank said.

Most of the demand for UN offsets will come from companies
participating in the European Union Emissions Trading System and
EU member countries looking to meet caps on discharges under the
Kyoto Protocol. Several countries that had previously bought
offsets as part of their commitment to the first period of the
Kyoto Protocol that ended last year, haven’t signed on to a
second Kyoto period, curtailing their demand for credits.

‘Political Commitment’

“A high-level political commitment from a large number of
developed countries will be needed to encourage new investment”
in offset projects, Kossoy said.

The report doesn’t calculate the value or size of the
global market as it has done in previous years. Instead, it
represents a “one-stop shop” for details and analysis of all
current and new emissions-trading systems and carbon taxes
around the world, according to Kossoy.

“Current market conditions invalidate any attempt and
interest to undertake the same qualitative and transaction-based
analysis,” he said.